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Cheap Steel Doesn't Come Cheap

July 16, 1995

News: Analysis & Commentary: STEEL

CHEAP STEEL DOESN'T COME CHEAP

The land-moving machines are only just starting to grade the sandy red soil of Decatur, Ala., site of the first steel mill to be backed by companies on three continents. Already, though, Trico Steel Co. is creating a hullabaloo.

A joint venture between No.3 U.S. steelmaker LTV, British Steel, and Japan's Sumitomo Metal Industries, the project marks a $450 million plunge by three big integrated steelmakers into the latest generation of minimill technology. It fits into a neat global strategy: If Trico works, says LTV Chairman David H. Hoag, the three partners could build more mills in Asia and Europe.

COURT FIGHT. First, though, some big hurdles must be overcome down in

Dixie. The United Steelworkers, which fears Trico will operate a nonunion, low-cost plant and precipitate industry overcapacity, is fighting the mill tooth and nail. "We'll do whatever it takes to stop it," vows Steelworker President George Becker. And Alabama's rival Gulf States Steel Inc. is challenging Trico's generous package of state subsidies in court.

Union opposition alone could produce giant headaches for 50% stakeholder LTV and its two partners as the mill goes up over the next two years. In the past, LTV and the union regarded minimills as the common foe. Indeed, after LTV emerged from bankruptcy in 1993, it opened a $312 million revamped--and unionized--mill in Cleveland that it dubbed the "minimill killer." LTV and the union also mapped out a partnership strategy: Management gave workers job security, and the USW agreed to more flexible work rules.

Now, Becker feels "betrayed" by Trico, which is emulating the efficient labor policies at minimills. Pay will be tied to productivity and profits; work rules will be almost nonexistent. Trico says it wants mainly to hire workers with college or technical training, who can perform different jobs. Whether they join the union will be up to them. But Trico officials insist it will follow the lean minimill model, regardless of the vote.

Becker fears that Trico will pump steel into a glutted market, devastating his membership by forcing less efficient, unionized mills to close. It's not hard to understand his concern: Trico hopes to produce 2.2 million tons annually with 320 workers; unionized Gulf States produces 1.1 million tons, albeit a slightly richer mix, with 1,850 employees.

Becker, who has headed the USW for a year, isn't battle-shy. On July 1, when the United Rubber Workers voted narrowly to merge with his union, he inherited a year-long battle against Japanese tiremaker Bridgestone Corp. He addressed LTV's board on June 23, urging it to scuttle Trico. It likely won't, raising the specter of USW retaliation. Becker shies away from explicitly threatening a strike, but pointedly notes that the USW struck LTV in 1986 over health-care benefits. Outsiders say the union also could tie up Trico with environmental suits, grassroots campaigns, and sympathy protests by foreign unions against its partners--tactics it has used before.

OLD BEEF. The dispute is embittered by old grievances against LTV in Alabama. In 1986, LTV went bankrupt--and temporarily stripped health benefits from retirees of Gulf States Steel, which it had divested just before the bankruptcy. "There's a lot of bad blood here," says Gulf States CEO John Lefler. Gulf States also frets that competition from Trico will force it into layoffs. In a bid to halt the mill, Lefler is challenging the "unfair" state tax subsidies for Trico--which could amount to $80 million--in Alabama court. "No state should be in a position to subsidize one company against another," says Lefler. He contends the payments also may violate the General Agreement on Tariffs & Trade.

Almost lost in the fracas are the operational challenges Trico faces. Led by CEO Bill Wiley, an LTV veteran, it must master the latest minimill technology while taking on a host of strong regional rivals, including the king of nonunion minimill operators, Nucor Corp., which has a similar mill in Arkansas and another on the way in South Carolina. No big integrated outfit has yet challenged Nucor so directly. But for now, that just may be the least of Trico's problems.By Stephen Baker in Pittsburgh, with Zachary Schiller in Cleveland